What are the benefits of SIPs?

Highlights

SIPs help you inculcate a regular savings habit

They help build corpuses for financial goals

They protect your funds from market volatility

They offer cost averaging benefits

Being disciplined with your finances is the cardinal rule for long term wealth creation. Systematic Investment Plans (SIPs) not only help you in inculcate a disciplined savings habit but also aid you in building a sizeable corpus to address various financial goals. They are one of the most convenient and prudent ways to begin investing for long-term goals, before branching out to equity investment. First-time investors looking to invest in mutual funds will find them particularly useful.

Here are some of the benefits of investing in SIPs:

Better investment planning

SIPs are key to successful investing. Regular investments help you plan your finances better, and also helps create wealth. Automatic investments at regular intervals (as opposed to timing the market) has proved to be conducive for better returns. SIPs also eliminate the need of market tracking.

Benefits of rupee cost averaging

The Rupee Cost Averaging strategy eliminates the need of timing the market, using predictive techniques to maximize ROI. Since the sum invested in SIPs is fixed, you automatically buy more units when the price is low, and fewer when it’s high. This acts as a defense mechanism while investing in volatile markets.

Ease of use

You can start investing in SIPs with as low an amount as Rs.500. The process of investing is also easy, with three 3 simple steps:

Register for an SIP

Fill the required details

Ensure availability of funds.

You can pay the money through postdated cheques or with an auto debit option. Monitoring investment is also easy, as periodic statements of accounts are sent by the CDSL, as well as the asset management company.

Compounding benefit

The key to wealth creation is to start investing early and not stop. For example, if you invest Rs. 1000 per month for 30 years and expect to gain a 10% ROI, then after 30 years your maturity amount will be Rs. 22,60,488. But if you start to invest for only 25 years, your maturity benefit reduces to Rs. 13,26,833. This difference in the maturity benefit is a result of the effect of compounding. Calculate the ROI of your planned investment using an SIP calculator.

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